Legislative work should be expedited to change the way of setting minimum wage

Published : May 8, 2019 - 17:11

Updated : May 8, 2019 - 17:11

Rising unemployment illustrates a major policy failure of President Moon Jae-in’s administration, which has put top priority on job creation since its launch in May 2017.

Moon, who enters the third year of his five-year term Friday, conceded in a recent Cabinet meeting that his government “has failed to prevent employment uncertainty from growing.”

Given the figures, that remark was euphemistic.

According to data from Statistics Korea, the number of workers hired in the country’s manufacturing sector recorded an on-year contraction for the 12th consecutive month in March, when the figure shrank by 108,000. The proportion of self-employed professionals forced to close their businesses within five years reached a record high of 89.2 percent last year, up from 77.7 percent in 2016.

The employment rate for workers in their 40s, who constitute the backbone of the workforce, declined 0.6 percentage point from a year earlier to 78.9 percent in March, extending the downward streak to 14 months.

Most economists agree that a key factor behind such gloomy employment statistics is a steep hike in the minimum wage, which the Moon administration embraces as one of the pillars of its income-led growth policy.

During his election campaign, Moon pledged to raise the wage floor to 10,000 won ($8.54) per hour by 2020. The hourly wage rose 10.9 percent to 8,350 won this year following a 16.4 percent hike last year.

The sharp wage increase, which came amid an economic slowdown, has driven mostly low-wage workers out of their jobs, as employers -- small businesses in particular -- have been pushed to cut their payrolls in a bid to reduce costs. Subsidies offered by the government to help offset increased wage costs have done little to deter companies from laying off employees.

The Moon administration, which usually turns a deaf ear to criticism, now appears to feel the need to moderate the pace of the minimum wage increase.

It has recently pushed for changes in how it decides what the minimum wage should be.

Currently, a commission comprising 21 members, who represent labor, management and the public interest in equal numbers, agrees each year on the minimum wage to be applied to all workplaces around the country the next year.

A government-proposed bill to amend the law calls for the formation of a separate panel consisting of nine experts, who would be tasked with suggesting upper and lower limits for the minimum wage. The existing commission would then decide on a specific figure within that range.

This method could ease the fierce confrontation between representatives of management and labor groups on the commission, enabling the minimum wage to be set at an appropriate level. Over the past few years, members representing the public interest, who are selected by the government, have held the key to setting the minimum wage. Those on the losing side -- representatives of either management or labor -- have boycotted the final vote.

To represent the public interest, the Moon administration has chosen pro-labor figures who have been ready to side with labor in voting for sharp increases in the minimum wage. These choices are now standing in the way of the administration’s efforts to moderate the pace of wage increases.

The proposed legal revision needs to pass the parliament this month at the latest to allow the minimum wage for 2020 to be set through the new system. The problem is that parliamentary deliberations on it are being stalled amid the mounting political standoff over a set of controversial reform bills pushed by the ruling Democratic Party of Korea.

Aside from their partisan strife, the ruling party and the main opposition Liberty Korea Party should cooperate for the early passage of the bill to prevent further steep hikes in the minimum wage, which would push most small firms and self-employed businesspeople over the cliff.

The 29.1 percent increase in the country’s minimum wage over the past two years is the highest among major economies whose per capita gross domestic products exceed $30,000.

It is necessary to include provisions that would allow for the differentiated application of minimum wage regulations by industrial sector, region and corporate size.

The political stalemate cannot be an excuse for administration officials to sit on their hands. They should step up efforts to persuade lawmakers to pass the amendments at an early date.

If the parliamentary process continues to stand still, the government should guide members representing the public interest on the wage commission to minimize the increase. It would be desirable to freeze the 2020 minimum wage at this year’s level.